1979 (10) TMI 32 - HC - Income Tax

Summary

Issues Involved:
1. Whether the remuneration and commission received by the karta of the respondent-HUF is assessable in the hands of the HUF or as individual income.
2. The applicability of the principles laid down by the Supreme Court in distinguishing personal income from HUF income.

Issue-wise Detailed Analysis:

1. Assessability of Remuneration and Commission:
The primary issue was whether the remuneration and commission received by the karta of the respondent-HUF, Sri K. S. Subbaiah Pillai, should be assessed in the hands of the HUF or as his individual income. The Income Tax Officer (ITO) initially assessed the income as HUF income, arguing that the remuneration and commission were earned by utilizing joint family assets or funds. However, the Appellate Tribunal found that the earnings were attributable to the personal services rendered by the karta in his individual capacity and not due to the investment of family funds in the company. The Tribunal noted that the company's prosperity was a result of expert handling, an individual attribute of the karta, and not merely the investment of the HUF funds.

2. Applicability of Supreme Court Principles:
The court examined precedents, particularly the Supreme Court's rulings in P. N. Krishna Iyer v. CIT and Raj Kumar Singh Hukam Chandji v. CIT. In Krishna Iyer's case, the Supreme Court held that income earned by utilizing joint family assets remained HUF income despite personal services involved. However, the court distinguished the present case from Krishna Iyer's case, noting that the latter involved a motor transport business that was inherently a family business.

The court found the present case more aligned with the principles in Raj Kumar Singh Hukam Chandji v. CIT, where the Supreme Court ruled that remuneration received for personal services rendered by a karta, even if the family had invested in the business, should be assessed as individual income. The court emphasized that the remuneration and commission received by Sri K. S. Subbaiah Pillai were for his personal services and expertise, not merely a return on the HUF's investment.

Conclusion:
The High Court concluded that the remuneration and commission received by Sri K. S. Subbaiah Pillai were not assessable in the hands of the HUF but were his individual income. The court held that the income was earned due to the personal services rendered by the karta and not as a result of the family funds invested in the company. The court's decision was based on the principles laid down by the Supreme Court in Raj Kumar Singh Hukam Chandji v. CIT, distinguishing it from the facts of Krishna Iyer's case. The court also noted that the Income Tax Department had accepted the remuneration and commission in the company's assessment without objection, further supporting the conclusion that the income was individual and not HUF income.

Final Judgment:
The court answered the question in the negative, ruling against the department and holding that the remuneration and commission received by Sri K. S. Subbaiah Pillai were assessable only in his individual assessment. The assessee was awarded costs of the reference, with an advocate's fee of Rs. 300.